12th February 2015
Official growth forecasts based on the Chancellor George Osborne’s economic plans are dependent on household debt growing much faster than pay, new research from the Trade Union Congress (TUC) has warned
The TUC analysis used forecasts by the Office for Budget Responsibility to compare earnings and household borrowing for the period from 2015 to 2019.
It concluded that while wages are forecast to grow at 16% over the period, total household debt is forecast to grow 2.7 times as fast at 42%.
Even more strikingly, unsecured household debt is forecast to grow 4.5 times as fast as wages – by 70% between 2015 and 2019. It will reach an average of around £29,000 of unsecured debt per household by 2019.
If the forecasts are met, the TUC asserted that total UK household debt in 2019 will be 182% of household income – significantly higher than the previous all-time high of 167% immediately before the 2008 crash.
But if households are unwilling to take on so much extra debt, then economic growth is likely to be lower than forecast.
TUC general secretary Frances O’Grady said: “The Chancellor seems to be hoping for a do-it-yourself recovery, where families run their own deficits and stoke-up their own debt. An average household debt of £29,000 is an awful lot of payday loans, credit card debts and bank overdrafts.
“This is exactly what happened before the last crash, and why we had to bail out banks full of bad debt. If interest rates rise, then many households will be in immediate difficulty.”
O’Grady added that in “a healthy economy”, workers’ wages grow faster than their debts and as such what the country really needs is a wages-led recovery and not “a debt-fuelled bubble”.
He said: “If this Chancellor continues he will be doing the exact opposite of what we need – his huge cuts to vital services will slow the economy while he encourages families to spend money they don’t have instead. It’s not so much a long-term plan as a dodgy flat-pack self-assembly recovery.”
Forecast for UK wages and household debt from 2015 to 2019
(Q1 2007 = 100)
|Total household debt